Short Blog – PayPal and Pinterest

Adding value to small merchants and engaging consumers in new ways. This tie up could certainly fit this goal. However, the financial metrics, Pinterest valuation, user demographic intersection and path to action don’t line up

PayPal and Pinterest – Super Distraction?

What’s behind this deal?

PayPal needs

    1. Increase users and platform engagement (MAU)
    2. Grow the merchant value proposition
    3. Get into the START of a consumer shopping experience
    4. Enable a new mobile first shopping experience – focused on small merchants – from beginning to end (like Alipay)

 Pinterest

    1. “Inspiration to Action” – They are missing the action beyond a ad click.
    2. Stalled user growth
    3. 50%+ Revenue growth with consistent operating loss.
    4. 454M Users with ARPU of $5.08/User vs PayPal’s $21/User
    5. Ad Growth to Action. Advertising business with solid advertising relationships with CPGs and large retailers. However you don’t click to buy from a CPG. 
    6. Needs platform to complete consumer journey.

    If PayPal wanted to build an AliPay in the US where would it start?

    My answer? Adding value to small merchants and engaging consumers in new ways. This tie up could certainly fit this goal. However, the financial metrics, Pinterest valuation, user demographic intersection and path to action don’t line up.

    Can PINTEREST pivot from Inspiration to Ad Click to a new world of purchase action? Pinterest hasn’t been able to do this organically. Remember most of the Pins are not from small businesses, but from individuals creating their own designs. If Pinterest became more marketplace oriented, it may lose the following of the core base that has enabled the sharing of ideas.

    Organizationally PayPal has been challenged to grow beyond the “buy” button. Efforts associated with PayPal’s SuperApp/Neo Bank were just starting to bring the organization together in a new consumer facing interface. Pinterest would pull exec attention in a completely new direction, together with their other previous acquisitions of Honey, Xoom, iZettle, …etc.

    Given that PayPal announces earnings next week, I do as the “why now”? question. While PayPal experienced 5-10 yrs of normal growth in the 18 months of COVID, it is expected to start leveling out, and they may miss guidance on user growth. But on the flip side Pinterest’s user growth is flat to negative, so an acquisition could not be to stimulate MAU growth (given both are flattening out)

    Is the Pinterest model of consumer engagement mature/holistic enough to form a foundation for a future commerce business?. Perhaps but at what price? It is not a proven model of end-end.

    $40B for 360M active users is a tad rich at $111/user.. but if you discounted Pinterests user base to account for users under 25 (15%) the cost per user could $128/user. Given an ARPU of $5.08/yr (Operating at a loss) that is 25yrs of consumer revenue.

    Speaking of discounts, PayPal should probably discount Pinterest’s CPG advertising revenue, as consumers do not “take action” and buy these products online (ie think P&G, and Cosmetics). They may also want to discount retailer ad spend, as most major retailers advertising on the Pinterest platform do not take PayPal at checkout. Talk about a lack of synergy: neither of Pinterest’s largest advertising groups (Large retailers, CPGs) use PayPal AND most Pinners are NOT merchants.

    Obviously buying a company 1/5th of your market cap requires a very solid plan on how Pinterest enables a new consumer experience from beginning to end. I’ve been in the both the payments business and the advertising business. I don’t see it. If it were April 1st I would have a better job explaining the rumor.

    5 thoughts on “Short Blog – PayPal and Pinterest”

    1. Thanks for the post, Tom.

      I have doubt over how the combination of ads on Pinterest and checkout options with PayPal would look. Specifically, I don’t see how buying Pinterest would make merchants use PayPal solutions. They can run ads on Pinterest and opt for another checkout solution. If PayPal tried to force the issue, merchants simply would go with another ads platform.

      What PayPal is after, I think, is the Taste Graph that Pinterest builds on their user data. The new PayPal app’s Shop tab is unimpressive. They throw in a bunch of offers that aren’t personalized. Perhaps, PayPal may want to use Pinterest data, coupled with transaction data that it already owns, to personalize deals for shoppers and help merchants grow their business right from the PayPal app. PayPal users now just open the app only when they have a need (send somebody money, for example). They don’t spend time on it for discovery purposes. With personalized deals, shoppers may be more incentivized to use the PayPal app more often.

      Like, I have been a fan of F1 Scuderia Ferrari team for 15 years. But if PayPal only looks at my transactions on all my credit cards, let alone only PayPal transactions, they won’t know it. But they will if they look up my Pins, since I use the same email for both.

      75% of Pinterest users are mobile users. Plus, there aren’t a lot of platforms with the kind of 1st party data and global footprint that Pinterest has. With that being said, I am not sure about the overlap in user base. I am also concerned about the engagement of Pinterest’s international users who make up 80% of Pinterest’s user base but only 20% of revenue. I am not sure if this reason can justify that $40+ billion price tag.

      1. We are very aligned. After thinking of your comment the only strategy that makes “some degree” of sense is that PayPal wants to use Pinterest to break into large retailers that do advertise on the platform. Get Pinterest users AND large Merchants to use PayPal for checkout. But this is a stretch..

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